Transformational leadership tends to come from top management, whereas transactional leadership is more associated with lower levels of management, but both affect performance, and the two are commonly compared. Transformational leaders bring about continuous learning, innovation, and change. Transformational leaders are motivational, as transformers gain acceptance of the mission and group’s purpose and motivate followers to go beyond (transcend) their own self-interest for the good of the organization and group.

Many charismatic leaders are also visionary and transformational leaders, but not all. Transformational leaders are especially needed in firms with growth strategies competing in dynamic environments. Transactional leadership is a leadership style based on social exchange. The exchange involves the principle that “you do this work for me and I’ll give this reward to you, and I’ll punish you if you don’t.” Transactional leaders are described as task and reward oriented, structured, and passive. Transactional leadership occurs mostly among middle and first-line managers.